RESOLVING THE LEDGER
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Oil prices tumbled Wednesday for the third straight day, as a flurry of headlines from the Middle East sparked renewed optimism in global markets. As of early Wednesday morning, U.S. crude oil had fallen more than 1.5% to around $81 per barrel and had earlier slipped as low as $79 per barrel for the first time since Aug. 13. International oil benchmark Brent was also down around 2% and trading at just under $86 per barrel. Driving the moves in oil were a trio of headlines over the past 24 hours that, taken together, could signal a shift in how both Tehran and Washington are approaching the war after six months. The first development was the renewal of talks between Iran and Oman about reopening the critical Strait of Hormuz, reported by Reuters. The U.S. State Department is also preparing to return American diplomats to their posts at embassies across the Middle East, according to The New York Times. And Secretary of State Marco Rubio told U.S. allies that the Trump administration does not expect to resume military strikes on Iran, according to comments reported by Axios. Paul Donovan, the global chief economist for UBS Wealth Management, sounded a cautiously optimistic note. “While this may not signal an immediate reopening of the strait, it does suggest Iran is considering reopening the strait,” he wrote in a note Wednesday. Further boosting the sentiment around Iran were comments from President Donald Trump’s comment Tuesday on social media. “I have just been informed by the United States Navy that all mines have been removed and/or detonated from within the International Waters of the Strait of Hormuz,” Trump posted on Tuesday. The timing of the post raised eyebrows, however, because the text mirrors a Trump post from Aug. 18, when he wrote that “all water mines have been removed or detonated.” Shipping analytics firm Kpler on Wednesday reported that “Strait crossings remain subdued.” The firm assessed that just five vessels had transited the Strait on Tuesday, which was down from seven on Monday and nine on Sunday. These figures represent just a tiny fraction of the pre-war daily average of 130 vessels. The falling price of crude this week is the latest twist in what has been a roller coaster ride of a year for oil markets. Both WTI and Brent crude futures are down a total of 9% since Sunday. After soaring to more than $110 per barrel in early April, U.S. crude oil dropped to the low $80s by the middle of that month before rebounding again to more than $100. By the end of May, crude oil prices had come down into the $80s. But it was the ceasefire announcement in mid-June that pushed oil prices down further, to near pre-war levels of around $70 a barrel for WTI crude. But these low prices did not last long. Throughout July, the lack of progress in U.S.-Iran negotiations and renewed U.S. strikes on Iran pushed prices back up. By the end of the month a barrel of U.S. crude was trading up into the low $90s. Wednesday marked the latest apparent nadir, as oil prices hit their lowest levels since the beginning of August. These whipsawing energy prices helped kept inflation high in July, the Bureau of Economic Analysis reported Wednesday. The Personal Consumption Expenditures index was unchanged from June, stuck at 3.7%. The lack of movement even extended to core PCE, the Federal Reserve’s preferred inflation gauge, which excludes the more volatile categories of food and energy and came in at 3.3%. “The United States still has an inflation problem. PCE inflation came in hotter than expected,” said Heather Long, chief economist at Navy Federal Credit Union. “The impacts of the war in Iran are still apparent.” The multi-day move lower in oil prices has also dragged bond yields lower. After trading at decades-high levels for days, the 10-year U.S. Treasury yield was trading around 4.6%, down from nearly 4.75%. The 30-year yield had fallen to around 5.18%, down from its recent high of more than 5.3%. Mortgage rates also trended lower for a second straight day. The average 30-year fixed mortgage rate was 6.74% early Wednesday. “When yields are falling, mortgage lenders are generally able to offer lower rates than they otherwise would have, depending on the timing and size of the move,” wrote Matthew Graham of data provider Mortgage News Daily on Tuesday. Yet even as oil prices, bond yields and mortgage rates are falling, gas prices remain high for consumers. Since Sunday, prices have largely remained flat and on Wednesday, the national average price per gallon ticked up to $4.10, AAA data shows.
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